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As Financial Planners and Investment Advisers, we receive a substantial amount of research and information about various asset classes.
Russell Investments provides investment advice and services in more than 40 Countries, and have prepared a “Long Term Investing Report – Comparing 10 and 20 year performance of various investments to December 2009.”
Summary
Performance By Asset Class
|
Asset Class |
10 Years |
20 Years |
|
Residential Investment Property |
10.4% |
9.8% |
|
Australian Shares |
8.4% |
9.7% |
|
Australian Bonds |
6.4% |
8.9% |
|
Global REITs |
5.3% |
|
|
Australian REITs |
3.7% |
|
|
Cash |
3.6% |
4.8% |
|
International Shares |
-3.6% |
4.8% |
Effect of Gearing
Borrowing Money to invest over the past 10 and 20 years would have effectively increased returns of these asset classes significantly.
Volatility vs Liquidity
The more liquid the asset, the more volatile it is likely to be.
Residential Investment Property has had a low volatility, as it has a high cost of entry and exit into that asset class. As a result, people tend to hold this asset class for the long term.
Shares on the other hand, are cheap to buy and sell, and is easily traded. As a result, this asset class has a significantly higher volatility.
Gearing – dependent on Volatility
As a result of high volatility, it is riskier to gear into shares, whilst there is substantially lower risk to gear into property (because of its low volatility). Banks are prepared to lend up to 90% of investment residential property, but will generally lend no more than 60% against shares.
Tax Benefits
There are various tax benefits when investing in shares and in property.
If one borrows money to invest, one can have negative gearing (claiming as a tax deduction interest and expenses less income received). (tax payer pays up to half your shortfall)
Shares – benefit from franked credits from dividends received
Property – benefits from depreciation allowances. New properties have substantially more benefits than older properties.
Superannuation
There are substantial benefits if you invest in your Superannuation Fund, which can increase your after tax returns significantly. Income is only taxed at 15% and capital gains tax between 0% and 10%, depending on your strategy.
Contributing to your Superannuation is tax deductable up to certain limits.
One needs to identify ways to maximize the value of your Superannuation Fund, as this is a window of opportunity, where you can build your asset base and income stream with minimal tax exposure.
Key to Wealth Creation through Investment
A key strategy is to invest regularly over a long term. This reduces any short term risks. As can be seen from the Russell Report, Investing in Shares and Residential Property over 10 years and 20 years have given significant returns.
The best time to get started on your investment strategy is NOW!!
If you would like a free initial consultation, please don’t hesitate to call us on 02 92623333 or email me on info@arktotalwealth.com.au
For a detailed report click here
The 'Informer' is an Ark Total Wealth initiative, developed to help individuals identify and understand the current opportunities that exist in investment markets. This initiative forms part of our commitment to provide innovative solutions and advice to clients, with the aim of creating, managing and protecting wealth.
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